U.S. Treasury Secretary Timothy Geithner announced a crackdown on home loan fraud, and the results surprised many; it seemed that practically overnight more than 2,000 open mortgage fraud cases were on the books.
News, updates, and explanations to keep you informed.
FHA Loans Government Crackdown on Loan Fraud
U.S. Treasury Secretary Timothy Geithner announced a crackdown on home loan fraud, and the results surprised many; it seemed that practically overnight more than 2,000 open mortgage fraud cases were on the books. The crackdown on home loan fraud brought a 400% increase in cases compared to the figures recorded for prosecutions in 2004. This would seem to indicate buying a new home is full of peril if you work with the wrong lenders, but do those applying for FHA mortgages, refinancing or homeowner relief have the same worries as someone looking for a conventional home loan?
FHA loans offer home buyers some extra protection against loan fraud due to the nature of the oversight and the regulations which govern FHA-insured home loans. The first thing you learn as a new FHA mortgage borrower? Not just any bank is allowed to offer FHA home loans--the FHA must approve banks to offer FHA loans, FHA refinancing and homeowner bailout programs. A bank which can't meet FHA standards is not allowed to offer FHA mortgages. That doesn't mean that every bank without the ability to offer an FHA loan is substandard--some banks may choose not to participate--but you can only get an FHA loan from an approved source.
Even with these standards in place, the government recognizes that it can't police the entire banking industry--lenders must comply with regulations, but if they don't there is no guarantee that the government knows the instant a lender stops conforming to fair lending laws. That's why the Department of Housing and Urban Development offers advice for those who want an FHA loan, saying borrowers should always ask important questions even if the bank is an FHA-approved lender.
WHAT SHOULD I ASK ABOUT AN FHA-APPROVED LENDER?
Before you commit to an FHA lender, be sure to ask up front whether the bank is FHA-approved to issue loans in your area. A financial institution may be authorized to offer FHA loans in some areas, but is your specific zip code or county one of them? Knowing this can be critical especially when applying for pre-approval or pre-qualification online. Don't find out after you've invested your time that the lender can't issue an FHA mortgage for your zip code.
You should also ask around to learn about your chosen lender's reputation. If you have a real estate agent or are working with one, ask about the bank in question. You might learn a lot by asking a real estate pro. Does a particular lender have a history of being helpful to its clients? Or do they tend to overcharge, work too slowly or are not forthcoming about the specifics of loan terms and conditions?
You can use local publications including the newspaper and online classified ad sections to compare banks. Shop around for interest rates, and try to find the most competitive rate you can before you approach a particular FHA lender.
When you approach a bank, ask the loan officer to explain points and origination fees charged for FHA home loans. Compare those figures with the terms offered at other financial institutions--does the lender charge more than other banks? If so, try looking elsewhere.
The Government's crackdown on loan fraud is definitely step in the right direction, but the government won't shut down all fraud overnight. FHA loans are safer than conventional loans because of the requirements the government holds lenders to--but don't assume that because the bank was FHA-approved in the past that they are still in full compliance or have your best interests in mind when it comes to terms, conditions and fees. Always read the fine print, and always ask questions for any section of the loan paperwork you don't understand. While there are plenty of reputable, honest lenders on the market, it often takes time for the government to catch up with those who stop complying with fair lending regulations.